Is This Hedge Fund Manager Wrong About Apple?

Hedge-fund manager Doug Kass says he is unimpressed by Apple’s (NASDAQ:AAPL) performance this year and feels the company may be losing its golden touch. Kass is concerned that the iPhone 5 launch and the reaction of most analysts to the device has not been as positive as previous Apple products have seen.

“Apple is losing some mojo and mindshare,” Kass wrote in a memo titled “More Bruises on Apple” on Wednesday, according to The Wall Street Journal. “This [The iPhone 5] is the first product launch by Apple with no wow factor and much less cool than other products on the market such as Samsung Galaxy S III and HTC One X.”

While Seabreeze Partners’ Kass thinks Apple will continue reporting strong results in the next few quarters, he adds that it will eventually lose its standing. “Can Apple keep the well-above-cellphone-industry-average customer upgrade cycle going?” the money manager asks. “With Steve Jobs gone, Apple is at risk of losing that magical Walt Disney (NYSE:DIS) feeling … It was delusional at times. But the company will lose this cachet. As I mentioned last week, almost all of a sudden, Apple’s suite of products is becoming more expensive and no better to worse than other products on the market. Eventually, this will hurt Apple.”

Apple stock is up 65 percent this year and it became the most valued U.S. company this summer, beating Microsoft’s 1999 record. Kass is worried that the company still holds a great weight on the overall market because of its share price. Apple accounts for about 5 percent of the S&P 500 and 13 percent of the Nasdaq Composite.

“Apple has truly become the investment tail that wags Mr. Markets’ dog,” Kass writes. “It all comes down to valuation. Bulls feel that the company’s prospects and profit stream are not baked into today’s share price, but given my concerns, which could emerge after the December quarter, and given Apple’s market cap, price-to-sales and meteoric rise this year, is there anyone that doesn’t own Apple’s shares at this point in time? And how many money managers (in part because of the weighting in the indices) are now overweight in the stock, particularly after the aforementioned period of outperformance?”